As summer internships start up, a recent New York case reminds us of the steep price employers can pay for improperly classifying interns as unpaid workers in violation of the Fair Labor Standards Act (FLSA).
Viacom Inc., Black Entertainment Television, LLC and Viacom International Inc., entered into a preliminary settlement agreement last week calling for total payment of an estimated $7.2 million to thousands of unpaid interns from their New York and California locations. The interns claimed that they performed the duties of employees and should have been paid at least minimum wage for the hours they put in.
Interns or Employees?
What makes an intern exempt from the requirement to be paid wages? The Department of Labor (DOL) regulations require that all of the following six tests must be met for interns in the “for profit” sector:
- The internship must be similar to the type of training given in an educational environment;
- The internship must be for the benefit of the intern;
- The internship must not displace regular employees and requires close supervision by staff;
- The internship does not provide the employer with any immediate benefits from the work performed;
- The internship does not entitle the intern to a job when it is over; and
- The internship is clearly acknowledged as an unpaid relationship by both the company and intern.
Internships in the public sector and for non-profit charitable organizations are generally permitted when the intern volunteers without expectation of compensation.
Terms of Settlement Agreement
While Viacom maintains that the interns were properly classified as unpaid under federal and state laws, they have agreed to the settlement calling for each of a class of thousands of interns to be paid $505.00 per semester for up to two semesters of participation in the internship. In addition, Viacom agreed to pay the two named Plaintiffs $5,000 each while two other class members received somewhat smaller pay-outs. Viacom also will pay up to $900,000 in attorneys’ fees and costs.
The settlement is expected to become final after a hearing before the court in December.
New Test Coming Soon?
Employers are watching two cases in the Second Circuit Court of Appeals (Wang v. Hearst Corp. and Glatt v. Fox Searchlight Pictures, Inc.), to see if a more lenient “primary beneficiary test” might be adopted. This test will simply look to whether the intern benefited from the experience more than the company in order to declare the worker a legitimate unpaid intern.
Until another test is adopted, “for profit” private employers must be very cautious in designating any worker as an unpaid intern. Unless the worker truly is there for the learning experience and does not provide any real benefit for the employer, it is best to consider that worker an employee and pay at least the applicable minimum wage. This is what is often called a “paid internship” but be sure to put the emphasis on the word “paid.”